Letter from the Founder

March 24, 2021


The Pandemic and the PVIX…Addressing Educational Shortfall

through an Inspirational Investment Symposium


First, Some Vol Backgrounder

It was almost exactly a year ago today, the VIX hit a new all-time high. Few in markets will forget the sheer magnitude of price swings in equity markets during that truly frenetic period, surpassing many of the vol measures used to quantify the tumult of the Global Financial Crisis.

Nearly every market has a VIX or a close equivalent. There is the VXN for the Nasdaq 100, V2X for Eurostoxx, VNKY for the Nikkei and VXEEM for the EEM. Outside of equities, there is the CVIX, VXHYG, TYVIX and GVZ for FX, high yield, swaption and gold vol. To make it even more fun, the CBOE has blessed us with the VVIX, a calculation whose input is a feed of VIX option prices. With the VVIX we can easily track the market’s implied vol of vol assessment. Lastly, and you knew it was headed our way, the Bitvol index helps to characterize the vol surface of the powerful, if still very new and risky, asset class called Bitcoin.

As illustrated, a wide swath of markets has a price of insurance associated with them. Option markets are generally studied using the Black Scholes framework, one that assumes an asset’s vol is constant over time and that returns are normally distributed. Experience is emphatically contradictory on both fronts. When I teach my class at SJU on episodes of financial crisis, I also teach some option theory. Why? Because as Harley Bassman so effectively states “when financial markets implode, short convexity is typically lurking at the scene of the crime”.  My favorite way of introducing the idea of put options is the analogy to car insurance. The underlyings (both the vehicle and driver), the premium, the deductible, the max payout, and of course the term, all have contracting equivalents to the actual listed equity option market. And we know that our friendly neighborhood car insurance provider never wins by more than the premium itself, rendering it short the accident.

Folks that are kind enough to listen to me have heard me repeat the phrase “theta is the rent on gamma” countless times. An old saying among options traders, the phrase describes the trade-off between the realization of convexity profits and the carry costs required to potentially enjoy them. You cannot get long that powerful Greek named gamma without lugging the oftentimes hefty theta bill that comes with it. In our car insurance introduction, Geico is Citadel, studying its own version of realized volatility and crafting computations on accident and theft frequency and the financial costs associated with them. There is a lot of data to mine here including the cross-sections of drivers, cars, neighborhoods and (mis)behaviors. But ultimately, the game is the same: use data to properly sell auto insurance contracts at an implied vol such that the premiums taken in outstrip the payouts and allow for an attractive return while still winning enough of the overall business.

In the business of both car insurance and stock insurance, accidents can happen for micro and macro reasons. On the micro front, DWI might pair off with accounting irregularities. On the macro side, there’s little way to escape an ice storm and we have all seen pictures of the highway pileup during one. It was a year ago that global markets faced a macro event and, suffice it to say that when the VIX reaches 83 (3/16/20), no individual stock is spared.

When Vol Meets Real Life…an Intro to the PVIX

With the dizzying array of financial products out there, market participants are connected real time to second-by-second changes in volatility. And much more than the spike in VIX-like metrics, March of 2020 brought a new all-time high in the personal VIX (PVIX?) for a huge proportion of people. Our personal VIX levels share characteristics with actual volatility markets. For options on the S&P 500, for example, there is both a realized and implied component that interact. For all of us, we have dreams and fears, both materialized and unmaterialized. A year ago, began the process of taking the fear component of these to new all-time highs for millions of people. Job losses, severe illness, broken educational plans for kids, and even death was materialized. These horrible outcomes pushed PVIX levels up a ton. A year later, even if you have not lost a loved one or close friend, the unmaterialized component of your PVIX is up dramatically. Will I find new work? If I did not get laid off, will the company I work at be able to keep me? How will I advance and grow my skill set working from home?  Will we make the rent?  Will I or a loved one get Covid?  Will a new variant reset this entire process? Lastly, the emotional toll from the isolation of lockdown is significant. The statistics on depression for kids and adults alike are, predictably, alarming.

It would be easy to argue that the largest source of unrealized uncertainty being experienced on a personal level for adults is the anxiety from the disruption of our children’s education. While there are different outcomes in different areas of the country, it has been tough on everyone. A lot of time has been lost at schools across the country, in rural and urban districts and the uncertainty about whether that will continue or even worsen is an ongoing source of stress. But it is not geographic, but rather economic differences that underpin the stark contrast in educational outcomes over the past year. If you lived in a community with substantial resources and your family had strong resources too, it has surely been very tough, but you have often been able to be creative, perhaps spending substantial time and money in the process to defray some of the negative educational impact. For those that started with much less it has been difficult.  In options parlance, there has been much less funding backstop to utilize to “roll the trade” and buy time. For far too many, without the personal and local community resources needed, the last year has been of great negative consequence for the educational and social development that is the number one priority of all parents. The K-shaped recovery is both an extremely apt and extremely unfortunate description of the last year, especially as it relates to students.

My Personal VIX Just Hit an All Time High

A year ago, the SPX experienced its all-time high in the VIX.  Almost exactly a year later, my family and I experienced ours. I was with my two sons on vacation in Turks and Caicos and we had an extremely serious jet skiing accident. It has been harrowing. My youngest son Liam was only badly shaken up with a bloody nose. My oldest son, Aidan, had a concussion was in the hospital for 3 days and will have rehab to do to get fully back on his feet as a result of 2 fractures. I will spend at least 10 days in the hospital recovering from multiple rib and pelvic fractures and a collapsed lung. It will be a long and challenging way back, but I am lucky to have an amazing wife, some financial resources and a job that only asks that I log on to the Bloomberg terminal each day. I am counting my blessings that the outcome was not worse and that my family is setup to recover. I also feel compelled to comment that health care professionals are simply amazing, possessing the expertise to heal and a willingness to lend a hand to those at a time of extreme vulnerability.

The Pandemic as an Accelerator…

For far too many, March of 2020 marked an awful acceleration of a trend already firmly in place: the self-reinforcing process of educational shortfall. Here, the kids with wealthier parents in wealthier communities ultimately become for their own kids what their parents were to them. This makes complete sense: our kids are our most important investments. It is not a science or meant to imply any sort of guarantee, but the starting point helps a great deal. Kids whose parents went to college are 7 times more likely to go to college themselves than are those kids whose parents stopped at high school. Over the past year, a huge proportion of parents, schools and communities in our country were simply not set up to step in and “fill the void” through the vast sums of time and money required. The net result has been that educational shortfall took a big leap forward.

 This comes at a time when we all know that labor market competition is intensifying. It takes more expertise to succeed and the set of skills required is becoming increasingly more challenging to acquire. In this context, the more educational access we can provide to children from unfavorable circumstances, the better. We all win.

MacroMinds…A First of Its Kind Investment Symposium

I have created a non-profit, MacroMinds, to help raise money for charitable organizations that focus on improving educational opportunities for children from disadvantaged families and communities in the NY area. Our fund-raising model is simple: host a symposium each year that contributes to the finance industry’s collective understanding of important topics on market risk, monetary policy and asset allocation and generate funding through the sale of tickets and sponsorships.

Taking place virtually on May 11 and 12, our event is approaching!  Here is the program agenda and the bios for the speakers and moderators. This is a content-packed symposium consisting of some of the most important voices in our industry at a time of significant uncertainty in markets, policy and the economy.  We will cover a lot of ground over these two days with deep exploration on the subjects that matter – asset allocation, inflation, monetary policy, distressed debt, the price of volatility, structured products and bitcoin. A key area of differentiation in our effort is the deep subject matter of our moderators, specifically chosen to guide conversations with world class investors. I have always believed that engaging panel discussions require not just accomplished professionals sharing their perspectives but a skilled moderator who can maximize the value of the conversation.

Good Deal Investing…Down but Not Out!

By a preponderance of measures, the world is full of richly valued assets. Some lean on the Fed model to argue that stocks remain cheap to bonds. Bonds, some argue may be cheap to cash, never mind they sport nominal yields below inflation on now and well below where the Fed says it wants inflation to get to. There does not seem to be an obvious path to success here and there are justifiable concerns that the risk asset landscape is highly susceptible to a further increase in bond yields.

Good deals are hard to find these days, but I strongly believe our symposium on May 11 and 12 is one of them. We are bringing some truly valuable content at a time when investors and policy makers alike are playing an uncomfortable version of risk whac-a-mole amid extreme uncertainty in the economy and markets. By being a part of this event, you and your firm are  providing critical funding to for our partner charities (Code Nation,  iMentor, and Mt. Pleasant Blythedale School).  I have worked closely with each of these organizations over the past 5 years and can attest to the highly positive impact they are having on children and families. They will make great use of the generous sponsorship dollars provided.

 A Closing Ask…

I would be grateful if your firm would consider a sponsorship of our upcoming event and help us support these 3 excellent causes. Our list of sponsors is already comprised of a “who’s who” of global dealers. If your firm is among these, call who you have to and score a ticket for May 11 and 12!  If not, I am hoping you can float this memo internally to the group at your firm that handles sponsorship opportunities and corporate giving. I would be available to answer any follow up questions and can be reached at dcurnutt@macroriskadvisors.com. Perhaps the motivation I have described for creating MacroMinds and the specific content to be delivered at our event resonate and are a fit for your company.


I thank you for your interest and consideration.



Founder, MacroMinds Foundation

Dean Curnutt is Founder and CEO of Macro Risk Advisors where he oversees the firm’s mission to deliver in-depth global market risk analysis and transaction execution services that help clients achieve better risk-adjusted returns. The firm has been the most highly ranked boutique in the Tabb Group’s Survey of Option Research providers.

Before founding MRA, Dean was Managing Director and Head of Equity Sales-trading at Banc of America Securities where he was a member of the Global Equities Management Team that set direction for the division. Previously at BofA, Dean was Head of Institutional Equity Derivatives and Convertible Sales and Strategy.